Further to our bulletin on 28 June 2011 outlining the proposed
changes to REC prices, the CERC has indeed confirmed that it is to
reduce REC prices by 15.38% to 17.88%. The reduction will certainly
knock investor confidence to some extent but the floor price has
been reduced to the extent originally announced. The market tends
to be more influenced by the floor price than the forbearance price
The CERC has announced the revised price bands for RECs for
2011 / 2012. The new price bands will be applicable from 1 April
2012. The floor price of the non-solar RECs will be the same as
announced (ie INRs 1,500 per MWh) whereas the forbearance price of
non-solar RECs will be reduced to INRs 3,300 per MWh. The
Commission, in its order dated 1 June 2011, had proposed to reduce
floor price to INRs 1,400 per MWh (from current Rs 1,500 per MWh)
and forbearance price to INRs 3,480 per MWh (from current INRs
3,900 per MWh).
For solar RECs, both floor price as well as forbearance prices
have been revised. The floor price has been reduced to INRs 9,800
per MWh (from current INRs 12,000 per MWh) and the forbearance
price has been reduced to INRs 13,690 per MWh (from current Rs
17,000 per MWh). The revised prices are in-line with those proposed
in the 1 June 2011 order.
At the public hearing held on 19 July 2011, industry
representatives opined that the market is more sensitive to changes
in reduction of the floor prices of RECs as compared to forbearance
The new prices shall remain valid until 31 March 2017.
Setting REC Prices
The CERC is permitted (in consultation with the Central Agency
and Forum of Regulators) to specify floor and forbearance prices
for RECs from time to time by the Central Electricity Regulatory
Commission (Terms and Conditions for recognition and issuance of
Renewable Energy Certificate for Renewable Energy Generation)
The Regulations specify a number of principles which the CERC
should take into consideration when setting the floor and
forbearance price, including:
variation across states in the cost generation of different
renewable energy technologies under the categories of solar and
variation in the Pooled Cost of Purchase; and
and expected electricity generation from renewable
Key data used by the CERC in setting the price bands is the
Annual Pooled Purchase Cost (APPC) which is the weighted average
pooled power purchase by distribution licensees (excluding power
sourced from renewable energy projects and costs of transmission)
in the Indian states during the financial year 2011/12.
The floor price for non-solar RECs is based on the difference
between the APPC and project viability costs corresponding to the
renewable power generation forecasted for 2012.
The forbearance price for non-solar RECs is based on the
highest difference between the forecasted APPC for all the states
and the costs of generation/RE tariff offered in various
The floor price for solar RECs is based on the highest
difference between the project viability cost for solar PV or
thermal projects for FY2011-12 and the APPC.
The forbearance price for solar RECs is based on the highest
difference between the solar PV/thermal tariff for FY2011-12 and
The proposals suggest a drive from the CERC to promote
competition, efficiency and investment in renewable energy
projects. It would be interesting to see following the consultation
whether the market agrees with its approach.
RECs are a policy mechanism to promote renewable energy based
power generation in India. Obligated entities are able to purchase
RECs to meet their Renewal Purchase Obligations (RPO).
REC trading was launched in India in February 2011 in an effort
to promote cleaner energy nationwide. Under this programme, the
clean energy producers are allowed to trade in RECs through CERC
approved power exchanges. Technologies such as wind, solar PV,
solar thermal, biomass and hydro are eligible to earn RECs.
An REC is created when one megawatt hour of electricity is
generated from an eligible renewable energy resource. RECs
represent the benefit of renewable energy based electricity over
electricity from non-renewable resources.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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